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What Does It Take for a Market to Function?

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  • Jeff Davidson
  • Alfons Weersink

Abstract

Markets are intricate webs of institutions and social arrangements that have evolved so that transactions can take place at minimum cost. Markets fail to evolve when the uncertainty that surrounds the transaction causes costs to outweigh the benefits of the exchange. If market failure caused by a missing market is to be corrected, the goal of the new market must be to minimize the transaction costs of exchange. The literature offers few suggestions for the conditions necessary for a market to function. The objective of this paper is to specify these necessary conditions by defining what a market really is, identifying characteristics of properly functioning markets, and describing design lessons learned from recent attempts at creating markets in alternative contexts. The paper concludes with a synthesized set of criteria necessary for a market to function.

Suggested Citation

  • Jeff Davidson & Alfons Weersink, 1998. "What Does It Take for a Market to Function?," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 20(2), pages 558-572.
    • Handle: RePEc:oup:revage:v:20:y:1998:i:2:p:558-572.
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    File URL: http://hdl.handle.net/10.2307/1350008
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    Cited by:

    1. Thrush, Alan J., 2003. "History, Organization And Strategies For Grain Producers And The Grain Industry In Michigan," Graduate Research Master's Degree Plan B Papers 11070, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    2. Edwards, Jeremy & Ogilvie, Sheilagh, 2012. "What lessons for economic development can we draw from the Champagne fairs?," Explorations in Economic History, Elsevier, vol. 49(2), pages 131-148.
    3. Ogilvie, Sheilagh & Carus, A.W., 2014. "Institutions and Economic Growth in Historical Perspective," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 8, pages 403-513, Elsevier.
    4. Sheilagh Ogilvie & Jeremy Edwards, 2011. "What lessons can we draw from the Champagne Fairs?," Working Papers 11007, Economic History Society.

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